Indian outsourcing company Infosys quarterly profit falls 0.9 pct but outlook improves

Infosys profit falls 0.9 pct but outlook improves

MUMBAI, India — Infosys Technologies Ltd. reported a slight decrease in quarterly profit Friday but raised its revenue and earnings forecasts — a signal the worst may be over for India’s software services industry after being hard hit by the global downturn.

Infosys, India’s second largest outsourcing firm, said net income fell 0.9 percent, to $317.0 million in the quarter ended September 30 based on international accounting standards, beating its own forecast.

Revenues for the period were $1.15 billion, a 5.1 percent decline from the same period a year ago but a 2.9 percent improvement from the prior quarter.

“The business climate has improved,” said Infosys chief executive S. Gopalakrishnan.

But, he added: “We should remain cautious at this point. Globally, yes, there are signs of a recovery, but there is still concern.”

Sandeep Muthangi, an analyst at Mumbai’s IIFL Capital, also cautioned that it’s too early to say “turnaround” because revenue growth hasn’t gained momentum. He doesn’t expect that to happen until after March of next year.

“The results are decent enough but revenue acceleration will not happen this year,” he said.

Infosys said it expects revenues for the fiscal year to be $4.6 billion to $4.62 billion, about 1 percent less than last year, but a more optimistic forecast than it made in July. It gets nearly two-thirds of its revenue from North America and one-third of revenues from banking and financial services companies.

The company said earnings per American Depository share for the fiscal year would be $2.09 to $2.10, 6.7 percent to 7.1 percent less than last year. That’s more optimistic than its July forecast of an 11.1 percent to 12.4 percent decline in earnings per share.

Infosys boosted its cash holdings by nearly 56 percent, to 137.96 billion rupees ($2.8 billion), and added 35 new clients during the quarter.

Gopalakrishnan said he expects information technology budgets at client companies, which fell about 7 percent this fiscal year, to remain flat next year.

Infosys executives said the fees it charges clients, which had been falling, have stabilized, and decision-making, which was frozen as client companies scrambled to cope with the downturn, has begun to thaw.

Gopalakrishnan said the company has benefited from takeovers in the outsourcing industry.

Deals have also come from clients mopping up from the global financial meltdown, with increasing demand for regulatory and compliance work and post-takeover integration, executives said.

Infosys, one of India’s most cautious companies, has begun to slowly increase hiring in anticipation of a return to growth.

Infosys added a net of 1,548 employees during the quarter, a turnaround from the June quarter when total headcount shrank by 945. During the Sept. quarter last year, Infosys added 5,927 employees net.

Infosys has announced a salary hike, effective Oct. 1, of 8 percent for India employees and 2 percent for employees outside India, which will shave 2 percentage points off the company’s profit margins over the next two quarters, executives said.

“Infosys has managed exceptionally well this recession,” said Moshe Katri, a senior analyst at investment company Cowen & Co. “They are exiting this recession with peak margins that haven’t been seen since 2001.”

Infosys shares gained 0.53 percent, to 2,223 rupees a share, in midday trade on the Bombay Stock Exchange, beating the benchmark Sensex index, which was down 0.53 percent, or 89.0 points, to 16,754.5.